BNG Bank issues World's first smart N-bond
13 June 2019
The trade was arranged by DZ BANK. The EUR 10 million cleared n-bond was issued as a private placement with a maturity of three years and a coupon of 0.05 %. Bank of New York Mellon acted as paying agent and registrar.
NSVs (Namensschuldverschreibung) are German law instruments. Under German accounting standards investors do not require a mark-to-market valuation. These two features make the NSV and the Schuldschein attractive investments for German institutional investors. However, the requirement of a physical paper exchange for settlement was an important obstacle for an internationalisation of these products. Between now and the 1980s little has changed in the administration of these German Law registered bond investment products. Today we have reached a turning point. By means of the eppf technology, the settlement of n-bonds can now be executed using existing bearer bond infrastructure, opening up the instrument for a much large investor universe.
The Smart n-bond issued today for BNG Bank has been developed by eppf with early stage involvement of Clearstream Banking AG and opens a completely new chapter. For the first time, n-bonds can be settled and transferred without sending paper certificates to investors. Cleared n-bonds issued via eppf receive an ISIN code and are treated as any other security via the clearing system using the European Central Bank’s TARGET2-Securities system. Investors will, therefore, not need to provision for a separate paying agency function for n-bonds anymore. In this way, also non-German investors will be able to invest into this product, opening up the market for n-bonds internationally. Cleared n-bonds via eppf do also count with majority provisions for noteholder meetings and do not include any hidden call-rights, doing away with two of the largest draw-backs of their Schuldschein sister. Issuers will now be able to approach not only typical German Schuldschein / n-bond investors but also international investors with the same financial instrument. That said, cleared n-bonds will not be listed and retain a high denomination.
All other advantages that eppf offers for regular bonds are also available for cleared NSVs. These are
- a standardised yet flexible always up-to-date documentation (Single European Debt Issuance Programme),
- a central API with fully machine-readable data and documents,
- near real-time issuance,
- reduction of set-up and maintenance costs for bond issuance of up to 80% for issuers,
- an extensive network of high-quality partners and, most importantly,
- straight-through processing throughout the entire bond issuance value chain
Robert Koller, Executive Chairman of eppf, said: “We are very pleased and honoured to be working with such an important institution in the global issuer landscape as is BNG Bank for our most recent product, the Smart n-bond. Not only does this show the general capabilities of eppf as a turnkey, straight-through-processing, near real-time industry utility but it also shows the strength of our innovative thinking and partner ecosystem. eppf is on a mission to implement the biggest change to the way bonds are being issued since the introduction of the electronic clearing system. With a pipeline of deals that range from plain corporate issuance, to infrastructure finance, to green bonds to public sector issuance, for small and large issuers alike, we are looking very positively into the future and will continue to innovate and to be the bond platform of reference.”
Peter Nijsse Managing Director Treasury & Capital Markets at BNG Bank: „At BNG Bank we welcome innovative initiatives aiming to improve primary market infrastructure and we are therefore participating in several projects to improve and modernize the flow of funds from investors to issuers. We are proud to be the first issuer of a ‘cleared NSV’ in eppf. With this new investment product, BNG Bank is seeking to support innovation in the primary market for NSVs. By testing investor demand for this new way of NSV issuance we also hope to access a wider pool of investors in BNG Bank fixed income products. Together with eppf, DZ Bank, Clearstream and Simmons & Simmons we have now shown that an efficient, fully digital, straight-through-processed flow of funds from investors to issuers is achievable. We hope that this will not only contribute to the growth and accessibility of the Schuldschein/NSV market, but we also hope that this will be an example for innovation in other segments of the fixed income market.“
H.E. Mr. Pierre Gramegna, Finance Minister of the Grand Duchy of Luxembourg, stated: „Luxembourg has a long tradition of pioneering in international capital markets, specifically in the area of debt instruments: From the listing of the world’s first Eurobond to the world’s first green bond. The issuance of the first smart n-bond, made possible by Luxembourg-based bond issuance platform eppf, is another illustration of this innovative spirit. In order to achieve the ambitions of the Capital Markets Union to provide broader and easier access to finance for start-ups and SMEs across national borders, Europe indeed needs private sector firms that are ready to develop and bring new solutions to the market.”
Wolfgang Koehler, CFA, Board Member for capital markets at DZ BANK, commented: “It is important to us at DZ BANK to support industry initiatives that deliver solutions. We found in BNG and eppf two partners that share our vision of further streamlining capital markets processes that not only bring down the cost base, but also open markets across Europe. We thereby generate new value propositions to issuers and investors on a truly European footing. eppf is an example of how existing financial technology can be adapted to create value. The regulatory approach in Luxembourg in combination with the ECB’s T2S System and Clearstream Banking AG are important facilitators behind the first ever cleared n-bond issued for BNG today. This shows that by combining existing technology with new approaches, we can arrive at novel and creative solutions. We are committed to continuously deliver on the combination of Legal Tech / Reg Tech, FinTech and RiskTech to improve DZ BANK’s services to our partners and clients.”
Berthold Kracke, CEO of Clearstream Banking AG, stated: “The settlement of cleared NSVs via the electronic settlement platform TARGET2-Securities marks an important step towards market digitisation and internationalisation. Clearstream supports innovative types of securitisation, especially when they increase fungibility and security of assets for investors by using established and efficient market infrastructures. In times of low interest rates, an increase of investment options in the German market is generally valuable.”
Louis-Maël Cogis, Partner and Country Head at Simmons & Simmons Luxembourg, commented on advising eppf: “eppf has taken a very ambitious path with the objective to dramatically change the way bonds are being issued and deals are being done in the capital market world. We are proud to be able to help eppf in that respect and the transaction with BNG Bank is a very important milestone on that path.”
Karsten Woeckener, Partner in the corporate finance practice of White & Case in Frankfurt, commented the collaboration with eppf as follows: “This transaction represents a further and important step in the digitization of capital market-relevant processes and products. eppf's latest product is another example of the advantages of this development: These types of products and the combination of digitization is becoming increasingly attractive for international investors and issuers for various reasons. I expect that this herald a wave of interest from other market participants. My team and I are pleased to have acted in an advisory capacity.”